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What is a lapsed policy?

Home Insurance

By Viola Wallace | December 19, 2018

Missed a few payments? Your insurance policy may have lapsed meaning it has been cancelled due to non-payment. If you are aware that you are behind on your premiums it’s important to pay attention to communications from your insurance company or broker about the status of your coverage.  Better yet contact them proactively to find out what your options are.

The important thing to understand is that when a policy lapses the policyholder is no longer covered by the insurer . Additionally allowing an insurance policy to lapse has implications for the future. A fee may be required to reinstate the policy and premiums may increase even if you move to a different insurer. Non-payment puts you in the same high-risk category as those who make frequent claims.

Aside from no longer being covered specific consequences of a lapsed policy and the measures that can be taken to resolve the situation vary according to the type of insurance:

A Lapsed Auto Policy

The key difference between lapses in coverage in car insurance and other types of insurance is that driving uninsured is against the law . Plain and simple. What are the penalties exactly? They vary by province but in Alberta the fine is between $2875 and $11 500. The severity of the penalties can escalate very quickly in the event of an accident when uninsured or with multiple offences.

While most insurance policies have a grace period providing an opportunity to catch up on premium payments while still remaining covered this window is typically very short. There is also no guarantee that every insurer provides this grace period. Staying on top of your auto premiums is important. If you are having financial troubles talk to your broker about your options.

A Lapsed Home Policy

The financial consequences of a lapse in a home insurance policy can of course be very problematic in the event of major theft severe damage or total loss. Home policy lapses can also cause significant financial problems even without a loss.Mortgage lenders require a certain level of insuranceon the property and if necessary they have the right to take out a home insurance policy if a homeowner’s own policy lapses. The homeowner will then need to pay increased mortgage payments to make up for the additional cost to the lender. Typically this will be considerably costlier than a regular policy and offer less coverage. The lender is only concerned with protecting their asset the property – the contents are of no consequence.

Other Types of Lapsed Insurance Policies

When other insurance policies such as business boat or travel insurance lapse coverage ends. If there is damage or loss to the policyholder or their property the cost of repair or replacement falls on their shoulders in addition to any associated liability.

How to Avoid a Lapsed Policy

1. Budget for your payments . Many insurance companies offer automatic payments to pay annually bi-annually quarterly monthly or even bi-weekly. The options available depend on the insurer and your payment history – if you have a record of not paying your bills options may be limited.

2. Talk to your broker about how to balance coverage with your budget. They may be able to  suggest coverage changes  or find a more affordable company to work with .

3. Pay attention to documents . It’s easy to ignore mail – or perhaps you’ve moved and missed some mail altogether.  Keep your contact information up to date and don’t forget to check in with your broker. It’s your responsibility to pay the bills even if a paper copy can’t find you. You can also sign up to get email notifications or schedule it yourself in your phone’s calendar.

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